Reliance Industries: Refining blues

In the June 2008 quarter, RIL posted GRMs of $15.7 per barrel, which disappointed the Street which had pencilled in margins of $16-17 per barrel, given the sharp rise in crude oil prices. Refining contributes about 55 per cent to the company’s revenues which were Rs 1.37 lakh crore in FY08. Moreover, industry watchers believe there could be a slight delay in the output of gas from KG-D6 basin with it now being available only in November or even later.

Analysts say less than robust demand and fresh refining capacity coming into the market—much of it in Asia and the middle east– over the next couple of years, could cause refining margins to fall 20-25 per cent from FY 2008 levels.

Over one million barrels per day (bpd) of crude oil distillation capacity is estimated to come on stream in CY08 while twice that capacity is expected to be commissioned in the following year. GRMs, which were ruling at roughly $15 per barrel in FY08 could, therefore, come off to levels of around $12 per barrel by FY10.

Towards the end of August, Singapore refining margins had dropped sharply the result of a fall in the margins for diesel.

With the new refineries being complex in nature, the demand for middle distillates such as diesel and kerosene is likely to be met. However, margins for diesel could nonetheless remain higher than those for gasoline.

RIL’s petrochemicals business which brings just over 40 per cent of revenues is expected to do well with petrochemicals margins firming up in recent weeks. Also, the risks of the company being asked to pay a windfall tax appear to have receded.

RIL is expected to end FY09 with revenues of around Rs 1.9 lakh crore and a net profit of close to Rs19,000 crore.

BS Report

Reliance, divesting KG D6 Assets ?

Reliance Industries (RIL) has scrapped its plan to transfer 80% of its participatory interest in the famous D-6 block of the Krishna Godavari basin gas field, perhaps the company’s most valued asset, to four of its subsidiaries. The company had sent a letter to the petroleum ministry on Thursday (August 28) withdrawing its earlier application which sought permission to transfer the stake to the subsidiaries. Under the production sharing contract, any contractor (here RIL) is supposed to get the government’s nod for transferring stake in any asset.

In the letter, RIL says that it has organised funds required for the exploration and production of the block, officially known as KG-DWN-98/3, and therefore wants to abandon its plan to transfer its participatory interest to the subsidiaries.

In its application to the ministry for the proposed transfer three months ago, it had said the move was aimed at increasing flexibility in organising finances for the development of the project. RIL’s investment in the KG basin blocks is expected to be around $8 billion. Interestingly, RIL, had got the go-ahead from the Directorate General of Hydrocarbon on this on August 21. The proposal had then been forwarded to the petroleum ministry.

When contacted, a RIL spokesperson confirmed the development. “RIL has raised the requisite financial resources and is no longer pursuing the application for assignment of participating Interest (PI) to the subsidiaries. Implementation of the project has not been hindered,” the spokesperson said.

“However, in view of non-receipt of such approval/confirmation, we have successfully firmed up alternate means of financing and have met the cash requirements of the project…. We are entitled to assign the PI as envisaged in the…PSC but having raised the requisite finance as aforesaid, there is no need at this time for us to pursue the means of financing that would envisage assignment of PI and for the record hereby formally withdraw the..application and request that no further action need be taken thereon,” RIL said in its letter addressed to the joint secretary (exploration) in the ministry of petroleum. ET has a copy of the latter.

Industry experts said RIL’s move could have been partly driven by the criticism of its big shareholders. A few major shareholders, especially the foreign institutional shareholders, had questioned the logic of the proposed move in the past few days after the development came to the fore on Tuesday.

RIL clarified the next day that these four companies, Reliance KG Exploration and development, Reliance KG D6 E&P, Reliance KG Basin and Reliance E&P KG, are wholly-owned arms. But there were reports saying at least one of these companies could be part-owned by two top-level RIL executives.

The timing of RIL’s withdrawal from the proposed move assumes significance. RIL has withdrawn the transfer of the participatory interest on Thursday (August 28), four days before the hearing of the legal case between the company and Anil Ambani’s Reliance Natural Resources (RNRL) in the Bombay High Court.

Source : ET, INfraline

RIL to start crude production from KG basin next month

With a FPSO (Floating, Production, Storage and Offloading) vessel set to stream into Kakinada from Singapore shortly , Reliance Industries Ltd is gearing up to extract crude from its Krishna Godavari basin wells by the second half of September.

The MA Fields in the D-6 block in the KG basin will produce about 40,000 barrels a day. The crude evacuated through pipeline grid set up will be shipped through tankers to refineries, according to RIL officials.

However, the gas produced from the KG wells will be pumped back into the wells as there is no possibility to store the gas. Meanwhile, the onshore gas processing facility at Gadimoga is nearing completion. “After the FPSO moves to Kakinada shores from Singapore, within a couple of weeks we expect production to commence from these wells. Initially, it could be about 15,000 barrels a day to be gradually ramped up to 40,000 barrels a day,” the official explained.

Asked about the gas production in the KG basin (Doubling India’s Gas Supply ny 2010), the official said that most of the installations and pipeline work of 1,400 km from Kakinada to Bharuch had been completed barring small link-ups.  

The undersea equipment has been procured. It is likely that by the fourth quarter of this year, the gas wells will be ready for production,Dhirubhai-I, the floating oil production unit chartered by Reliance, has been built by converting a large tanker in Singapore.

According to information reaching here from Singapore, the floating unit left Jurong yard last Wednesday and is scheduled to arrive at the eastern coast of India by Friday.

The floating oil unit is on a 10-year charter from the Norwegian company Aker and the initial contract value was $750 million. Aker will also operate and maintain the FPSO under a separate five-year contract.

Once the FPSO is anchored and connected to the oil wells, which is expected to take at least two weeks, oil production from a developed field can commence within a month, said an oil industry expert.

Unlike normal tankers, which need dry-docking at least every two years, the FPSO is designed to operate for 10 years without dry-docking.

Dhirubhai-I can process 60,000 barrels of oil and 15 million cu m of gas a day and can store 1.3 million barrels of oil.

The 8.86 lakh dwt tanker –S.T.Polar – was originally built in the US. The refitting at the Singapore yard is expected to extend the 25-year-old vessel’s life by 15 years.

As reported In Business Line 

KG Basin: Doubling India’s Gas Supply by 2010

India, Asia’s third-largest oil consumer, is encouraging use of natural gas to control its oil import bill and rein in inflation but there is not enough supply to satisfy rising demand. Gas demand in India, at around 179 million standard cubic meters a day, is far short of the supply of about 95 mmscmd (including LNG).

Supplies are expected to double by 2010 when KG-D6 reaches peak of 80 mmscmd and flow of additional LNG (read production from RIL K- G Basin blocks) . However, by them demand projections made by Petroleum Ministry see the need for about 230 mmscmd of gas.

K-G Basin Estimated Reserves:The Directorate General of Hydrocarbons, the oil and gas regulator, had earlier said gas reserves in the block amount to 1.38 tcf. Reliance Industries’ block, one of the largest discoveries in the country, in the same basin has reserves of 11.3 tcf.

Patel also said GSPC had booked a capacity of 10 million cubic metres per day (mcmd) in the gas pipeline that Reliance Industries is laying to transport its oil from Andhra Pradesh to Gujarat.

On Shore Terminal at Kakinada: Modi added that 300 acres had been acquired in Kakinada, Andhra Pradesh, to build an onshore gas processing terminal.

GSPC has drawn a master-plan at a cost of Rs 8,000 crore for setting up city gas distribution projects in 40 cities in Gujarat, the company said in a statement recently.

Source: BS, Hindu

Historical leap towards India’s energy security

Reliance is investing $5.2 billion to develop Krishna Godavari, its largest field. Gas produced in the area is expected to more than double the country’s total output.

The Mumbai-based group’s Reliance Petroleum Ltd unit is building the 580,000 barrel-a-day refinery adjacent to a 660,000 barrel-a-day plant owned by the parent. Once complete, Reliance will own the world’s biggest refinery, according to the parent.

Chairman Mukesh Ambani earns more from each barrel of oil than overseas refiners by processing cheaper, lower grades of crude at a plant two days away by ship from Middle East oil fields. Reliance earned $15.5 from processing a barrel of oil into fuel in the quarter ended March 31, compared with $7 for a plant in Singapore, the company said on April 21.

Ambani, the second-richest Indian and the world’s fifth-wealthiest person, according to Forbes magazine, needs higher profits to fund $24 billion of planned investments in chemical projects in the gas-rich Middle East and increase oil and gas exploration to benefit from record energy prices. The expansion will help Reliance triple earnings in the next five years.

As reported in 34th AGM

NELP VII : Future of Oil exploration

In the recently concluded NELP VII round of bidding under the new exploration licensing policy (NELP) the government has offered 57 oil & gas blocks under NELP-VII. This included 19 deepwater blocks, 29 are onland blocks and nine blocks are in shallow water. 

NELP So far

In previous six rounds, the government awarded 162 blocks. So far, the largest commitment of $3.32 billion investment was received in under NELP-VI where 52 blocks was awarded. Under NELP rounds, 49 oil and gas discoveries have already been made in Cambay onland, North East Coast and Krishna Godavari deepwater areas, accreting over 600 million tonnes of reserves.

NELP VII

Out of 19 deepwater blocks, GVK-BHP got seven blocks, ONGC bagged three blocks and Cairn has been lucky with one deepwater block and BP-RIL bagged one. There has been no takers for seven deepwater blocks. The bidding round (launched on December 13, 2007) was originally scheduled to be closed on April 11. The deadline was first extended to April 25, later it was changed to May 16 and finally to June 30. 

Big player Missing from Show

Big oil companies like ExxonMobil, Chevron, Total and Shell, among others, preferred to stay away.

New entrants like LN Mittal (one block with HPCL), BHP Billiton (seven blocks with GVK group), RIL-British Petroleum combine(one deepwater block).

DGH Response

“Response for gas expecting blocks are lukewarm because of lack of clarity on policy related issues,” said Director General of Hydrocarbons VK Sibal on the response and the bids. Exploration companies have taken a conservative approach and have bid cautiously, given the uncertainties in the tax regime, an analyst said.

“The bidding was low and the response was lukewarm,” a senior official from the director general of hydrocarbons said. While 12 blocks, out of a total of 57, failed to get even a single bid, as many as 19 got just one bid. As many as seven of the no-show blocks were in the deep water region. The response for the smaller fields, however, was relatively good.

Source : DGH, Media Reports, Industry

Rig Market in India

A boom in exploration in India has tripled rig usage over the past four years, adding to a global shortage and causing delays in tapping natural gas off the Indian east coast. Transocean, the world’s largest offshore drilling company, may raise rig prices further after India completes the biggest auction of offshore blocks.

• With crude oil prices galloping over $ 135/bbl, increased investments in exploration and production space globally has become inevitable.However, lack of availability of rigs will continue to keep the day rates firm.  

• Rents have tripled since 2005 for new rig contracts stretching up to 2012 as explorers seek to decrease the delay between discovery and development to take advantage of high oil prices.

 

Indian Market

Transocean, the world’s largest offshore drilling contractor with 82 units, made $296 million, or 10.2 percent, of total sales from India, according to its 2005 annual report. Revenue from India more than doubled since 2003, the fastest among Transocean’s main markets

Future Expetation

Reliance is paying $320,000 a day until August 2008 to rent the Deepwater Frontier rig, more than twice what the rig’s owner, Transocean, charged an earlier client, according to Transocean’s Web site. The rent is set to rise to $477,000 a day, if Reliance extends the contract in 2008 for another three years.

Riding on Market Boom :

Aban Offshore (Aban), with its 22 rigs (post acquisition of Sinvest) is well poised to leverage on the industry dynamics. Historically, Aban has clocked the highest operating margins in the industry at a global level.

Contract renewals for six of Aban’s assets (including Sinvest) are due over the next 10 months. With the current tightness in the rig market, the re-pricing of these contracts is expected to happen at significantly higher rates compared to their existing rates.

Essar Oilfields Services, a unit of Essar Shipping & Logistics, in Cyprus, paid $220 million for Transocean Wildcat, a 30-year-old offshore rig that can operate in depths of about 400 meters and capable of drilling up to 7,600 meters

 

Source : BS, Hearld, Transocean

 

Rigs demand: Offshore support companies on rise

As the quest for discovering oil hidden deep under the sea bed gathers momentum, fortune of Indian companies engaged in providing offshore support solutions to oil exploration companies have been riding high on the bourses.

 The biggest development in this sector was the announcement of NELP-VI in February 2006, under which a total of 55 blocks were offered, including 30 offshore blocks. Further, ONGC, along with its overseas arm ONGC Videsh Ltd, and ONGC Mittal Energy and Reliance Industries Ltd have been scouting for opportunities all over the world. (also see: Reliance Building Assets world over)

 OMEL has bagged two blocks in Nigeria, estimated to have reserves of about 500 million barrels each.

Considering that less than half the wells awarded since 2000 have been drilled, the demand for rigs is set to remain high in the near future. The government has decided to offer more exploration blocks under NELP VII in the coming days.

 

The higher level of exploration activity in India has increased the demand for rigs over the past few years. In 2005-06, about 35 rigs were operating in India (including jack-up rigs, drill barge, platform rigs and drill ships). This rose to 45 in 2006-07 and is expected to go up to 50 by the end of 2007-08 (These figures include ONGC-owned rigs).

Companies such as Aban Offshore, Dolphin Offshore, Garware Offshore, Jindal Drilling & Industries  and Duke offshore, apart from shipping companies such as Great Eastern Shipping that are operating in this space, have seen brisk trades at the counters in the last few weeks. Internationally, a rig could fetch a daily hire charge of about $ 3,00,000 at present,  Great Offshore a leading integrated offshore service company, had placed the order for the rig with Bharati Shipyard. Betting big on the rig, scheduled to be delivered by April 2009, Great Offshore clinched a five-year contract from ONGC for deploying it.

Source: HIndu, Rediff, News

Reliance : FPSO on MA field

Reliance Industries has awarded a FPSO contract to Aker Floating Production. Aker Borgestad Operations will be in charge of operations and maintenance of the floating production, storage, and offloading vessel (FPSO) Aker Smart 1 at India’s MA field.The value of the five-year project is just over USD 100 million. The Reliance includes options to extend the contract period.

In May 2007, Aker Floating Production entered into a contract in excess of USD 750 million contract with Reliance for chartering of the Aker Smart 1 FPSO. The new contract with Aker Borgestad Operations expands the initial scope of work with Reliance to cover FPSO operations and maintenance. Under the contract, Aker Borgestad Operations will be in charge of both technical operations and FPSO operations for the production of oil, gas, and condensate from the MA field.

Aker Smart 1 will be deployed at the MA field, which is located at water depths of 1,000-1,400 meters, some 60 kilometers offshore eastern India. Production start-up will take place in two phases: oil production is scheduled for April 2008, and gas production will begin in the fall of 2008.

Word of Advice:

One more boost to the booming bootomline of RIL, this along with the likely production of Gas from KG basin in April- June  08 will boost the RIL revenue in the years to come.

 Source : Oil & Gas